February 15, 2017 / 7:04 PM / 5 months ago

Alberta orphan oil well tally jumps as Lexin licenses suspended

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An oil pump jack pumps oil in a field near Calgary, Alberta, July 21, 2014.Todd Korol

CALGARY, Alberta (Reuters) - The Alberta Energy Regulator (AER) suspended licenses on all oil and gas well facilities and pipelines belonging to Lexin Resources Ltd on Wednesday, nearly doubling the number of orphaned wells in Canada's main crude-producing province.

The provincial regulator ordered privately-held Lexin to cease all production, saying it failed to comply with multiple orders and lacked enough staff to manage its more than 1,600 sites.

Calgary-based Lexin also owes more than C$1 million to Alberta's orphan fund and more than C$70 million in security for its obligations to clean up its oil and gas facilities at the end of their producing life.

"The closure order is the result of a year of trying to work with the company to come into compliance," said AER spokeswoman Cara Tobin. "With the number of non-compliances and the debt that was owed we felt it was important to take these steps."

Lexin did not immediately respond to a request for comment.

Alberta's Orphan Well Association (OWA) is responsible for cleaning up wells that have no owners financially able to deal with abandonment and decommissioning costs. It is overseen by the AER and funded by levies from the oil and gas industry.

The enforcement action by the regulator means the 1,380 wells belonging to Lexin are now in the care and custody of the OWA, taking the total numbers of ownerless wells in Alberta to 2,970.

Tobin said that at this time there is no abandonment order on Lexin's wells, and she did not have any estimate of how much crude Lexin had been producing because the company stopped reporting output last summer.

Brad Herald, chairman of the OWA, said he expects a number of Lexin's wells that are commercially viable will eventually be bought by other companies, but that process could take up to six months.

"This is quite an unusual situation," Herald said, adding that normally wells came to the OWA via a court appointed receiver process following a company going bankrupt.

There are 1,590 other orphan wells in Alberta that are awaiting abandonment and clean-up, an issue that prompted the Alberta government in the past to say it could ask the federal government for help in covering the costs.

Fully reclaiming a disused oil well can cost between C$60,000 and C$300,000 depending on factors including well depth and location.

Reporting by Nia Williams; Editing by Tom Brown

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